Beyond 2015: Maintaining Ireland’s Public Finances on a Sustainable Path

David Cronin
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David Cronin: Central Bank of Ireland

No 05/EL/11, Economic Letters from Central Bank of Ireland

Abstract: In this note, three mechanical fiscal rules that are designed to maintain a sustainable path for the public finances are examined. Adherence to a strict numerical target for the deficit ratio has a procyclical effect on the economy’s growth rate. Building a safety margin into deficit targets in the manner of the Stability and Growth Pact allows the public finances to have a stabilising influence on the growth cycle and ensures a lower average government debt ratio is achieved over time. A debt target rule would result in a different path for the structural primary budget balance and the debt ratio over time even when the long run targets for those variables were the same as under the Pact.

Date: 2011-07
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